Redundancy is a part of working life in many Australian businesses. It can happen when a company changes direction, cuts costs or restructures. One option often offered is voluntary redundancy, where an employee chooses to leave in return for a payout. This guide explains what it means, how it works and what employers need to know.

A quick guide to voluntary redundancy

Voluntary redundancy happens when an employer offers a payout for an employee to leave their role. The employee chooses whether to accept. It often takes place during restructures or cost cuts. This option can suit both sides and may lead to new jobs, study or retirement. Tax rules depend on how the payout is classified.

What is voluntary redundancy and when is it offered?

Voluntary redundancy occurs when an employer asks staff to leave their job in return for a financial package. The employee can choose to accept or reject the offer. It is not the same as being forced out of a job.

This type of redundancy is often used during business changes. These might include downsizing, mergers or shifts in company direction. Employers offer this option to reduce staff numbers without forcing terminations.

Voluntary vs involuntary redundancy

It’s important to understand how voluntary redundancy is different from involuntary redundancy.

  • Voluntary redundancy is a choice. The employee can accept the offer or stay.
  • Involuntary redundancy means the employee’s role is removed, and they must leave the business.

Both are legal types of termination of employment but follow different paths. Voluntary redundancy usually involves consultation and mutual agreement.

Why employers offer voluntary redundancy

Employers use this option for several reasons:

  • Reduce the workforce while lowering legal risk.
  • Avoid conflict that can come from forced terminations.
  • Keep morale higher during periods of change.
  • Make room for new skills or restructure teams.

This approach can also help employers comply with legal rules and the Fair Work Act 2009.

Why employees accept a redundancy offer

Employees might accept a redundancy for reasons like:

  • Starting a new job or business.
  • Changing careers.
  • Planning for early retirement.
  • Receiving a lump sum payout.

However, the decision depends on personal goals, financial needs and the job market.

Employer vs employee – key considerations

Employer's view Employee's view
Reduce costs and restructure teams Secure payout and explore new options
Lower legal risk through voluntary exits Leave on their own terms
Manage workforce changes smoothly Plan for career change or retirement
Comply with obligations and avoid unfair dismissal Gain compensation for years of service

Voluntary redundancy offers benefits for both sides but requires clear planning and understanding. If you're considering offering redundancies, seek advice and review your agreement carefully.

A diverse group of professionals in a modern office reviewing voluntary redundancy documents together during a team consultation meeting.

Understanding redundancy in the modern workplace

Redundancy is a common part of working life today. Many workplaces go through changes that lead to staff cuts. This can happen for several reasons. Some roles are no longer needed due to automation, and others are lost due to budget cuts, economic changes or company restructuring.

Not all redundancies are negative. While being made redundant can cause stress and uncertainty, it can also open doors. Many employees use the change or an offer of voluntary redundancy to switch careers, gain new skills or start a business.

Voluntary and forced redundancy

There are two main types of redundancy: voluntary and forced.

  • Voluntary redundancy: The employer offers a payout. The employee can choose to accept it.
  • Forced redundancy: The role is removed. The employee must leave. This often follows a set redundancy process under employment law.

Voluntary redundancies are more flexible and may suit both parties. Forced redundancies may trigger claims for unfair dismissal if not done correctly.

Redundancy and trust in the workplace

Redundancy must be handled with care. Clear communication builds trust. When managers clearly explain the reasons and steps involved, employees are more likely to feel respected and part on positive terms. This is vital during the consultation process. It helps reduce confusion and fear across the workforce.

Employers should ensure they meet their obligations under the Fair Work Act 2009 and follow the National Employment Standards (NES). This includes notice periods, redundancy pay and support for affected staff.

Strategic use of redundancy

Some reasons an employer may decide to reduce staff include:

  • Adapting to digital tools and automation.
  • Lowering costs during a downturn.
  • Changing business goals or services.
  • Closing a department or office location.
  • Meeting industrial or legal changes in operation.

When handled well, redundancy can lead to stronger teams and better business outcomes. Employers know that how they manage the redundancy process can affect their reputation and staff retention.

What qualifies as a genuine redundancy in Australia?

A genuine redundancy is different to a voluntary redundancy and happens when an employer no longer needs a person’s role to be done by anyone. It must follow the rules set out in the Fair Work Act 2009. These rules help protect both the employee and employer during the termination of employment.

To be genuine, the redundancy must meet strict legal tests. If it doesn’t, the employee may claim unfair dismissal.

Key rules under the Fair Work Act

To qualify as a genuine redundancy, an employer must:

  • Show that the position is no longer needed due to changes in the business.
  • Follow a fair and clear consultation process, especially if a modern award or enterprise agreement applies.
  • Explore all redeployment options within the business or related businesses.

If an employer hasn’t followed these steps, the redundancy may not be considered genuine.

Legal and compliance risks for employers

Employers must comply with the Fair Work Act 2009 and the National Employment Standards (NES). If they don’t, they risk legal claims and fines. The Fair Work Commission may review the case if a worker disputes the outcome.

Employers also need to handle personal information lawfully during the process. They must ensure their actions are fair, consistent and well-documented.

Tax benefits for employees

A genuine redundancy payment may be tax-free up to a set limit. This limit depends on the employee’s years of service and age. The Australian Taxation Office (ATO) sets this cap each year. Any extra amount may be taxed at a lower rate than your normal income.

Is it a genuine redundancy?

Use this checklist to help assess if a redundancy is genuine:

Requirement met Yes/No
The job is no longer needed
A proper consultation process was followed
Redeployment was considered
No unfair selection or discrimination
Employer has documented the decision process

If you're considering offering redundancies, make sure you follow the law closely.

Is voluntary redundancy a non-genuine redundancy?

Voluntary redundancy is often seen as a non-genuine redundancy under Australian tax law. This is because the employee chooses to leave rather than being forced to go. While the role may still become redundant, the voluntary agreement changes how the redundancy is treated for tax purposes. Some voluntary redundancies may still qualify as genuine redundacies depending on the circumstances of the voluntary redundancy offer.

This distinction affects both the employee’s tax outcome and the employer’s reporting obligations. It’s important that both sides understand what this means before making decisions.

Why it’s usually non-genuine

A genuine redundancy must meet set rules under the Fair Work Act 2009 and tax law. It must involve a job that is no longer needed. There also needs to be no option to move the employee to another role.

When an employee voluntarily accepts a package to leave, the ATO often sees this as a choice. This makes it a non-genuine redundancy for tax purposes in most cases, even if the role is later removed. Voluntary redundancy payments can, however, still qualify as genuine redundancies if they meet specific criteria. Seek legal advice if you are unsure.

Tax treatment and payments

The key tax difference is in how the redundancy payment is taxed. A genuine redundancy payment may be tax-free up to a set cap. A non-genuine redundancy is treated as an employment termination payment (ETP). It is taxed at a lower rate than your normal income, but not tax-free.

The ETP cap depends on the amount paid and the timing. If the payment is made soon after termination, employees may be able to claim a better tax rate.

Employer responsibilities for non-genuine redundancy

Employers must:

  • Report the payment as an ETP.
  • Apply the correct tax rate.
  • Give the employee an ETP statement.
  • Keep records for compliance.

Clear advice helps avoid mistakes. If you're considering offering an employee the option of voluntary redundancy, seek legal or tax advice if you are unsure of your legal obligations.

A Black male manager in a modern office reviewing digital redundancy packages and compliance steps on his laptop, reflecting responsible employer planning.

What employers should consider before offering redundancy packages

Redundancy can help a business adapt to change, but the redundancy process must be handled with care. Employers have a legal and ethical responsibility to treat employees fairly. Poor handling can lead to claims, lost talent or damage to trust. Here’s what employers need to get right when considering offering redundancies.

Plan the workforce and reduce risk

Before offering any packages, employers must review their business needs. Ask:

  • What roles are no longer needed?
  • Will the change help reduce costs or improve operations?
  • How will the team function after roles are removed?

This step helps avoid removing critical positions or losing key staff. It also ensures that the decision matches broader business goals.

Stay compliant and fair

Employers must comply with the Fair Work Act 2009, awards or contracts that apply. To avoid unfair dismissal claims, they must:

  • Identify roles, not individuals.
  • Avoid bias or discrimination.
  • Keep records that show a clear, fair decision-making process.

Following a proper consultation process also supports fairness. In many cases, it's a requirement under modern awards or agreements.

Communicate clearly and respectfully

Honest, early communication builds trust. Explain:

  • Why redundancies are needed.
  • Who is affected and why.
  • What support will be provided.

Compassionate delivery makes a tough message easier to hear. Managers should prepare and offer time for questions.

Retain key people

Redundancy can trigger other staff to leave. Employers should identify and support critical workers to stay. Offer training or new roles where possible to maintain team strength.

Tip: Make admin easier

Use a platform like Business Kitz to:

  • Prepare and send agreements.
  • Track digital signatures.
  • Securely store records and employee data.

This saves time, improves accuracy and helps you comply with record-keeping rules. Try out Business Kitz today with a free account.

What employees may be entitled to under voluntary redundancy

When an employee accepts a voluntary redundancy, they may receive a range of payments and benefits. These are often based on their contract, the award, and the rules under the Fair Work Act 2009.

Standard entitlements

If an employee is made redundant, they may be entitled to:

  • Redundancy pay based on their years of service (some small businesses are not required to pay redundancy pay).
  • Notice period pay if they are not required to work it.
  • Accrued annual leave.
  • Accrued long service leave, depending on state laws and length of service.

It's important to note that some small businesses with less than 15 employees may not be required to pay redundancy pay. Speak with a lawyer to check what the rules are for your business.

These payments form part of an employee's redundancy package. The amounts can vary depending on your employment type and how long you’ve worked with the business.

Statutory vs contractual entitlements

There are two types of entitlements:

  • Statutory entitlements are set by the National Employment Standards (NES). They apply to most employees covered by the Fair Work Act 2009.
  • Contractual entitlements are extra benefits written into an employee's contract or an enterprise agreement. These may offer more generous terms than the law requires.

Some employees may also receive extra bonuses or compensation as part of a special offer.

Voluntary redundancy entitlements checklist

Item Included Notes
Redundancy pay Based on years of service
Annual leave payout Paid out in full
Long service leave Depends on state and service
Notice period or pay in lieu NES minimums or as per contract
Extra bonuses or incentives If offered by employer
Superannuation on payout May not apply to redundancy pay

Each employee’s case is different and redundancy pay exceptions may apply to some small businesses. What an employee receives can depend on their contract, award or enterprise agreement. Always confirm what they are entitled to before making your next move.

A young East Asian woman working confidently at her home office after voluntary redundancy, starting her own small business in a bright, minimalist space.

Why some employees choose to go voluntarily

Many employees choose to leave through voluntary redundancy when given the option. It can offer a fresh start or help with long-term goals. The choice is personal and depends on money, timing and an employee's future plans.

Career motivations

There are many reasons someone might accept a redundancy package:

  • Start a new job in a different field.
  • Return to study or gain new skills.
  • Launch a small business.
  • Take a break or plan for retirement.

For some, leaving a job means gaining the freedom to do what they’ve been wanting for years.

Each person’s employment situation and life stage will affect the decision. Some may feel ready for change. Others may worry about the risk and uncertainty ahead.

Example: Anna the Admin

Anna had worked in admin for over 15 years. Her employer offered a voluntary redundancy during a team restructure. She took the payout and used it to start a virtual assistant business. Within six months, Anna had her first five clients and more control over her work.

Voluntary redundancy can become a positive experience

Voluntary redundancy doesn’t have to be the end of the road. For many people, it’s the start of something new. With the right plan, your employees can use their time and money to grow their skills, shift careers or even start a business.

David the Designer: a success story

David worked in a design team that was restructured. His role was made redundant. With a solid redundancy pay package and over 10 years of service, he took time to rest then set up as a freelance designer. Now, David earns more, works from home and chooses the clients he enjoys.

Make the most of your documents

Keep your employment documents safe and organised. Business Kitz helps you:

  • Store termination letters and payout details.
  • Sign agreements online.
  • Access records anytime.

This helps you reduce admin, improve compliance processes and make employee data easily accessible. Sign up today!

Frequently asked questions about voluntary redundancy

What happens if an employee's role is made redundant?

If an employee's role is made redundant, their employer must follow a clear process. You must show that the employee's position is no longer needed and explore other options for the employee within the business. If you don’t follow this, the employee may have grounds to claim unfair dismissal. Employees may be entitled to severance pay and other benefits under their agreement or award.

What steps do employees need to take before accepting voluntary redundancy?

Employees need to take time to review their offer. Check their full entitlements, including leave and any bonuses. Ask the employer questions if the terms aren’t clear. They may also want to get legal or financial advice. Once ready, employee's should submit their signed agreement as soon as possible.

Can employees get another job if they accept a redundancy?

Yes. If employees choose to resign under a voluntary redundancy offer, they can apply for another job right away. They can also use the time to retrain or study. It’s a good idea for employees to estimate how long they might be without work and plan their income around that.

Do I need to pay tax on redundancy payments?

Yes, but it depends on the type of redundancy. If a genuine redundancy payment applies, part may be tax-free. If it’s a non-genuine redundancy, it’s taxed as an employment termination payment. This is often taxed at a lower rate than an employee's normal income. The employee may still need to pay tax on any extra amounts.

What makes an employee eligible for a genuine redundancy?

For an employee to be eligible for a genuine redundancy, the employer must show that the employee's job is no longer needed. You must follow the proper process under Fair Work Australia rules and try to find the employee other work. You must also follow any award or contract rules. If you don’t satisfy these steps, it may not be a genuine redundancy.

What if employees aren’t offered a redundancy package?

Not all roles will include a payout. Some workers, like casuals or those with short service, may not qualify for redundancy pay. If you are unsure, check the relevant award or contract or seek legal advice.

How does redundancy affect an employee's long-term experience?

Being made redundant doesn’t reduce an employee's career value. It often shows they have worked through change or reduction. Many people use it to grow, start another job or even introduce new skills. With the right mindset, it can be a positive experience.

Can an employer legally terminate an employee without a payout?

Employers must follow the law. They can only terminate an employee without a payout in specific cases, such as serious misconduct or if the employee is not covered by redundancy rules. Most full-time staff with continuous service are entitled to some form of payment when their role is removed in relation to business needs. Always check the legal requirements in your state or territory before taking action.

Final thoughts

Offering voluntary redundancy is a serious decision that affects your team, your operations and your legal standing. When planned and managed well, it can support business change and protect your brand.

Key takeaways for employers

  • Redundancy may be needed due to change, restructure or cost reduction.
  • Voluntary redundancy gives employees a choice and lowers the risk of claims.
  • Know the difference between genuine and non-genuine redundancy for tax and reporting.
  • Follow all steps under the Fair Work Act, awards and contracts.
  • Keep accurate records and handle the process fairly.

A clear and fair redundancy process helps you maintain trust and stay compliant. It also reduces the chance of dispute or dismissal claims.

Use Business Kitz to create, sign and manage your redundancy and employment documents in one place. This saves time, improves accuracy and helps you meet your responsibility as an employer. Sign up today!

 

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